Dynex Power Announces Second Quarter Financial Results 2014

Lincoln, England, August 28th, 2014 - Dynex Power Inc., a leading, high power semiconductor company, today announced its financial results for the second quarter and six months ended June 30th, 2014.

Summary financial information for the three and six months ended June 30th, 2014 is as follows:

The average rate of the Canadian Dollar has weakened against Sterling by approximately 16% between the second quarter of 2013 and the second quarter of 2014 and by approximately 17% between the first half of 2013 and the first half of 2014. These changes have had a significant impact on the figures presented above.

The 2.2% increase in revenue from $10.0 million in the second quarter of 2013 to $10.2 million in the second quarter of 2014 was less than might be expected given the weaker Canadian Dollar. In Sterling terms, reductions in sales of bipolar products were offset by improved sales of power assemblies; accordingly, overall sales of the Company’s power semiconductor product groups were marginally increased. However, sales of integrated circuits were down significantly and, as a result, sales in Canadian Dollars did not rise by as much as might be expected.

On a year to date basis, the rise in sales was bigger than might be expected from just exchange rate movements as Dynex experienced growth, in Sterling terms, from all three semiconductor product lines partially offset by weaker sales of integrated circuits.

The gross margin of 14.1% in the second quarter of 2014 was lower than the 19.4% reported in the corresponding quarter of last year. The gross margin was below the range targeted by management and reflected weaker revenue than had been expected and continuing weak yields on new products, an issue that is being addressed by management. For the year to date, the gross margin was 11.3% compared to 10.0% in the corresponding period last year. For both periods, the low gross profit reflects the weakness in revenue being reported.

Sales and marketing and administration expenses represented 12.3% of revenue in the second quarter and 11.4% of revenue for the year to date compared to 9.2% and 10.9% in the corresponding 2013 periods. These costs have been on a steadily reducing percentage for a number of years. The small increases in 2014 reflected a number of one-off costs including tax and grant advice and an increase in life assurance costs following a change to UK pension legislation. Dynex continues to expect these ratios to improve in the longer term.

Net expenditure on research and development rose to 3.8% of revenue in the second quarter and 3.5% in the year to date compared to 2.9% and 3.3% in the corresponding 2013 quarter and year to date. These increases are a result of a deliberate decision by management to invest significantly in research and development in order to drive the long term growth of the business. The rise in gross expenditure on research and development (which includes funding received from CSR Times Electric and Government bodies) is even larger and underlines the strategic advantages of the Company’s relationship with CSR Times Electric. Gross expenditure on research and development is now running at approximately 16% of revenue.

As a consequence of these changes, Dynex reported a loss before tax in the quarter of $387,000, compared to a profit before tax of $608,000 in the corresponding quarter of last year. For the year to date, a loss before tax of $1.0 million was recorded compared to a loss before tax of $796,000 in the corresponding period of last year. The decline in year to date performance reflects the weaker than expected revenue being reported and the problems being encountered with the yield on new products.

At the end of the second quarter, the Company’s order book stood at $24.6 million, approximately 4% lower than at the end of the first quarter. The order book is expected to increase when the current yield problems are resolved.

Revenue is expected to increase in the second half of the year compared to the first half and the Company expects to return to profitability.

Dr. Paul Taylor, President and Chief Executive Officer commented, “Our expectations for the power semiconductor market is that, following a sharp decline in 2012 and modest growth in 2013, the market will grow more rapidly in 2014. Dynex is beginning to see that recovery and indeed our power semiconductor revenue in the first half of 2014 has reached an all time high, with further growth to come. In Q2, the benefits of that record revenue did not flow down to the bottom line due to increased costs as we continue to invest for growth and resolve on-going yield problems. New equipment is being installed to deal with the yield problem and adjustments are being made to the production processes. This work is going well.”

Bob Lockwood, Chief Financial Officer commented, “Much work has been carried out to return the business to profitability and to underpin the future expansion of the business. We are beginning to see the fruits of this hard work, although it is taking longer than we had hoped to impact on the bottom line. Nevertheless, we expect to return to profitability in the second half of the year.”

Li Donglin, the Chairman of Dynex said, “I am pleased to see that Dynex’s results are moving in the right direction and, like all shareholders, I look forward to the Company’s return to profitability. The investment in research and development and in new process equipment should help ensure the business is able to remain profitable and grow strongly in the coming years.”